4.2 Poverty, inequality, and human development in a global context

Poverty, inequality, and human development are crucial aspects of globalization and international political economy. These issues shape the lives of billions and influence global economic policies. Understanding the metrics and strategies used to address them is key to grasping the complexities of international development.

This section dives into how we measure and tackle poverty and inequality worldwide. It explores absolute vs. relative poverty, income disparities, and human development indicators. We'll look at successful poverty reduction programs and debates surrounding aid effectiveness in promoting global development.

Absolute vs Relative Poverty

Defining Poverty Thresholds

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• Absolute poverty uses fixed income threshold below which individuals cannot meet basic needs
  • World Bank sets extreme poverty line at $1.90 per day
  • Measures inability to afford essentials like food, water, shelter
• Relative poverty defined in relation to overall income distribution in a society
  • Typically measured as percentage of median income (50% or 60%)
  • Captures inequality and social exclusion within a specific context
• Poverty lines vary between countries and regions
  • Reflect differences in cost of living and societal standards
  • Higher thresholds used in developed countries (US poverty line ~$35/day)

Multidimensional Approaches to Poverty

• Multidimensional poverty measures go beyond just income
  • Include factors like access to education, healthcare, clean water
  • Captures non-monetary aspects of deprivation
• Chronic poverty refers to long-term, persistent deprivation
  • Often transmitted across generations
  • Contrasts with transient poverty caused by temporary setbacks
• Global context encompasses both developed and developing nations
  • Absolute poverty more prevalent in low-income countries
  • Relative poverty remains an issue even in wealthy nations

Implications for Policy and Development

• Distinction between absolute and relative poverty impacts policy approaches
  • Absolute measures guide global development goals (SDGs)
  • Relative measures inform domestic social policies
• International development goals focus on eradicating extreme poverty
  • World Bank target: Reduce population living on less than $1.90/day to 3% by 2030
• National poverty reduction strategies often use relative measures
  • Address social inclusion and inequality within countries
  • May set higher poverty lines than global absolute standards

Income and Wealth Inequality

Measuring Economic Disparities

• Income inequality measured by indicators like Gini coefficient and Palma ratio
  • Gini coefficient ranges from 0 (perfect equality) to 1 (perfect inequality)
  • Palma ratio compares income share of top 10% to bottom 40%
• Wealth inequality considers asset ownership and distribution
  • Often more pronounced than income inequality
  • Includes financial assets, property, and other forms of capital
• "Great Divergence" explains historical widening of economic gaps
  • Describes growing inequality between industrialized and developing nations
  • Began with Industrial Revolution, accelerated in 20th century

Causes of Rising Inequality

• Globalization contributes to both reductions and increases in inequality
  • Reduced global inequality between countries
  • Increased within-country inequality in many nations
• Mechanisms driving inequality include:
  • Outsourcing of low-skilled jobs to developing countries
  • Skill-biased technological change favoring highly educated workers
  • Financialization of the economy benefiting capital owners
• Structural factors contributing to inequality:
  • Disparities in education and healthcare access
  • Unequal labor market opportunities and wage stagnation
  • Regressive tax systems and weakened social safety nets

Consequences and Policy Debates

• High inequality leads to various negative outcomes:
  • Social unrest and political polarization
  • Reduced economic mobility and opportunity
  • Potential negative impacts on democratic institutions
• "Middle-income trap" describes how inequality hinders development
  • Countries struggle to progress from middle to high-income status
  • Inequality limits domestic market growth and human capital development
• Policy debates surrounding inequality include:
  • Progressive taxation (wealth taxes, higher marginal income tax rates)
  • Strengthening social safety nets (universal healthcare, education)
  • Inclusive growth strategies (job creation, skills training)

Human Development and the HDI

Conceptualizing Human Development

• Human development focuses on expanding individual freedoms and capabilities
  • Concept developed by Amartya Sen and others
  • Goes beyond economic growth to consider quality of life
• Key dimensions of human development include:
  • Long and healthy life
  • Access to knowledge and education
  • Decent standard of living
• Relationship between economic growth and human development is complex
  • Some countries achieve high human development despite lower GDP (Cuba)
  • Others have high GDP but lag in human development indicators (oil-rich states)

The Human Development Index (HDI)

• HDI combines indicators of life expectancy, education, and per capita income
  • Life expectancy at birth measures health dimension
  • Mean years of schooling and expected years of schooling for education
  • Gross National Income (GNI) per capita for standard of living
• HDI scores range from 0 to 1, with higher scores indicating greater development
  • Countries classified as low, medium, high, or very high human development
  • Norway consistently ranks at top, Niger often at bottom
• Trends in HDI scores reveal global progress in human development
  • Significant variations across regions and countries
  • Sub-Saharan Africa and South Asia show largest improvements in recent decades

Critiques and Alternative Measures

• Critics argue for inclusion of additional dimensions in HDI:
  • Environmental sustainability (carbon footprint, biodiversity)
  • Gender equality (gender wage gap, political representation)
  • Political freedoms (civil liberties, press freedom)
• Inequality-adjusted Human Development Index (IHDI) accounts for distribution
  • Adjusts HDI score based on inequality in each dimension
  • Countries with high inequality see larger drops in IHDI compared to HDI
• Multidimensional Poverty Index (MPI) complements HDI
  • Captures acute deprivations in health, education, and living standards
  • Identifies overlapping deprivations at household level

Poverty Reduction and Human Development Strategies

Social Protection and Cash Transfer Programs

• Conditional cash transfer programs show success in alleviating poverty
  • Brazil's Bolsa Família improved education and health outcomes
  • Mexico's Prospera reduced poverty and increased school enrollment
• Universal basic income (UBI) experiments assess impact on poverty
  • Trials conducted in Finland, Kenya, and India
  • Preliminary results show potential benefits for well-being and labor market participation
• Social protection policies reduce vulnerability to poverty
  • Pensions prevent old-age poverty
  • Unemployment benefits provide temporary support during job loss
  • Health insurance protects against medical poverty traps

Economic Empowerment and Financial Inclusion

• Microfinance initiatives provide financial services to low-income individuals
  • Grameen Bank in Bangladesh pioneered microcredit model
  • Effectiveness in poverty reduction remains debated
• Pro-poor growth strategies focus on inclusive economic development
  • Aim to increase income of the poor at higher rate than average
  • Policies include rural development, labor-intensive industrialization
• Financial inclusion efforts expand access to banking and credit
  • Mobile banking reaches unbanked populations (M-Pesa in Kenya)
  • Savings groups provide informal financial services in rural areas

Global Development Goals and Aid Effectiveness

• Millennium Development Goals (MDGs) set targets for 2000-2015
  • Achieved significant progress in reducing extreme poverty
  • Criticized for narrow focus and lack of environmental considerations
• Sustainable Development Goals (SDGs) represent current global commitments
  • 17 goals addressing poverty, inequality, and sustainability
  • More comprehensive than MDGs, but implementation challenges remain
• Effectiveness of foreign aid in promoting development is controversial
  • Debates center on aid dependency and conditionality
  • Emphasis shifting towards local capacity building and ownership
• New approaches to development cooperation emerging
  • South-South cooperation between developing countries
  • Public-private partnerships leveraging business resources for development